Sometimes a solution that seems obvious to me, is not talked about at all. So I’d like to throw this out there for what it’s worth. Let’s say a lender approved someone for a $650,000 loan back in 2006, BUT using sound ratios and current mortgage rates, they really only qualify at $500,000.
Instead of the taxpayers paying $150,000 to “cramdown” the mortgage to $500,000 to help them stay in a house they shouldnt have bought in the first place, why not do a “do over”? Have the lender give them the $500,000 mortgage they should have given them in the first place, but on a different house? Add a requirement that they most move to and buy a house of someone else who got in over their head. Seems simple to me. Just go back and do it correctly.
Have the people move to a house at today’s reduced prices, that they actually qualify to live in. Then sell the more expensive house OR play “musical houses” by moving someone who should have had a loan of $650,000 into their house. Move everyone around into pre-foreclsoure houses at the prices they can actually afford. Then only sell the ones left at the end.
There’s a lot of talk about “the house of cards”…well let’s reshuffle the deck and deal again. Move people to the house they should have bought in the first place, instead of having bunches of vacant bank owned properties. Better than the taxpayer helping them live in a house they couldn’t afford in the first place.
Wouldn’t work for everyone. But this solution added to loan mods and some other solutions, just might work in areas over-run with foreclosures and bank owned properpties.
It sounds all too leftist. I mean… a forced move? Mass migration of the foreclosed and pre-foreclosed? Entire tracts of empty homes suddenly possessed by the ones determined by the government to be unqualifyingly qualified? A whole new class in our society will be created. Employers will be hesitant to employ those who have addresses in such neighbourhoods. Kids will be teased in school. Halloween will be full of tricks and not treats. In some cases, entire towns will be swapped out seemingly overnight.
And what of the upperclass hanging on by the skin of their teeth? What will happen to their country club membership? Can you still drive the benzo when everyone knows you live in forcedclosureville (spelling on purpose).
Yes. Your plan makes a lot of sense. A lot of plans that take those who make trouble in our society and force them to confront those issues (like jail) make sense. However we tend to draw the line at forced mass migrations (unless you are a Native American). And what you are talking about is indeed forced mass migrations (even to the house next door). That said, as one who is not in any sort of foreclosure trouble I am all for the scarlet lettering of those who purposefully deceived or co-operated in fraudulent statements to get a house they couldn’t afford.
The answer is not so simple. I tried typing out some suggestions but realized they were getting pretty long and deleted them. Maybe that’s why the bailout package is over 1000 pages.
It sounds all too leftist. I mean… a forced move? Mass migration of the foreclosed and pre-foreclosed? Entire tracts of empty homes suddenly possessed by the ones determined by the government to be unqualifyingly qualified? A whole new class in our society will be created. Employers will be hesitant to employ those who have addresses in such neighbourhoods. Kids will be teased in school. Halloween will be full of tricks and not treats. In some cases, entire towns will be swapped out seemingly overnight.
And what of the upperclass hanging on by the skin of their teeth? What will happen to their country club membership? Can you still drive the benzo when everyone knows you live in forcedclosureville (spelling on purpose).
Yes. Your plan makes a lot of sense. A lot of plans that take those who make trouble in our society and force them to confront those issues (like jail) make sense. However we tend to draw the line at forced mass migrations (unless you are a Native American). And what you are talking about is indeed forced mass migrations (even to the house next door). That said, as one who is not in any sort of foreclosure trouble I am all for the scarlet lettering of those who purposefully deceived or co-operated in fraudulent statements to get a house they couldn’t afford.
The answer is not so simple. I tried typing out some suggestions but realized they were getting pretty long and deleted them. Maybe that’s why the bailout package is over 1000 pages.
Agent Will,
Let’s start from Yes and talk about the instances where it would work. It’s not for everyone, but clearly it could work for at least 20% of the problem. We have seen people trading houses on their own up in Sacramento to shift the tide. Seriously, it can work well for many.
Remember, many will have to leave their houses and go someplace else anyway. So “forcing them to move” is not really a problem when they can’t afford to stay where they are.
I don’t understand your comment anymore than you understand my post 🙂
If people don’t want to live where they can afford to live, well that’s just tough beans they have to swallow…isn’t it? And the country club/benz comment made no sense to me.
“Forced migration to the house next door”? You think the taxpayer should pay $150,000 cramdown so someone doesn’t have to move next door? Makes no sense to me.
I don’t understand your comment anymore than you understand my post 🙂
If people don’t want to live where they can afford to live, well that’s just tough beans they have to swallow…isn’t it? And the country club/benz comment made no sense to me.
“Forced migration to the house next door”? You think the taxpayer should pay $150,000 cramdown so someone doesn’t have to move next door? Makes no sense to me.
Agent Will,
Here’s a simple example from my area.
A single person bought a brand new 1 bedroom condo, but before it was finished, decided to upgrade to a 2 bedroom she couldn’t afford. We couldn’t talk her out of it.
There are now vacant one bedroom condos in the SAME building from a couple of people who shouldn’t have bought at all.
Why not simply “fix the error” and find a way for her to get into the 1 bedroom she can still afford that she should have closed on in the first place? Why should the taxpayer pay many thousands so she can stay in the two bedroom?
Do you really think it is “too leftist” to have her move from the 3rd floor with a veiw and 2 bedrooms, to a one bedroom on the first floor without a view?
In the areas that have already corrected, the $500K house people really couldn’t afford 2 years ago and the $300K house they can afford now are the same property.
Once you get over a certain price point, the number of people that can afford is small. I don’t see how this kind of policy would do anything other than saddle the banks with a ton of high priced vacant homes. They’d need to cut the prices anyway to unload them.
In the areas that have already corrected, the $500K house people really couldn’t afford 2 years ago and the $300K house they can afford now are the same property.
Once you get over a certain price point, the number of people that can afford is small. I don’t see how this kind of policy would do anything other than saddle the banks with a ton of high priced vacant homes. They’d need to cut the prices anyway to unload them.
I had similar idea – see my February 14 post at:
http://sfpeninsulareguru.com/possible-solution-to-foreclosure-problem-open-for-discussion.html
The beauty of Ardell’s idea and my post is that it involves NO government money. No taxpayer money is needed.
The lender takes the loss as they should and the buyer gets into a house they can afford at a price lower than what they paid maybe 3 years ago.
Maybe specific foreclosure “disaster” zones could be designated by census tract perhaps, where buyers would be allowed to “walk” and not suffer unde credit damage. Perhaps, US govenrment could mandate FHA to not ding person’s credit for this “walk-away”.
Just a thought….
rob-u-blind,
One of the things about some of the loans is that people simply relied on what the lender told them their price point was. Many of the lenders were automatically jacking up that price to sub-prime ratio range:
1) because it was easier to process the stated sub-prime loan
2) because there was higher profit on the sub-prime loan
These are cases where the buyer would have been more than happy at a lower price. They simply followed the lenders advice and pre-approval amount.
In those cases, the people would truly be more than happy with the solution I have proposed here. It won’t work for everyone, but clearly at least 10% to 20%.
…even if it’s 5%…?
This plan is extremely similar to another scheme – which has been in effect since the housing bubble blew up. A mortgage payer sees a house in the neighborhood similar to her own, but priced, today, at about 1/2 her cost. So, she buys it, and jingle-mails her first house keys back to the bank. That’s the house she “should have bought” back in 2005. It was too high then, but now, it’s just right.
http://cbs13.com/local/foreclosures.real.estate.2.638417.html
What is great about the intentional plan is the homeowner isn’t being shoved around to keep up housing prices, and she stays in her preferred location, getting what feels like a very good deal for a very similar house. Seems like more people would self-direct to the intentional plan than the trading one.
Either way, it’s just churning in the market. Either way, banks get back a lot of empty overpriced houses, which will need big price cuts before being re-sold. The reality is that housing has to drop a lot more in price. One way or another, that’s what is ahead.
This plan is extremely similar to another scheme – which has been in effect since the housing bubble blew up. A mortgage payer sees a house in the neighborhood similar to her own, but priced, today, at about 1/2 her cost. So, she buys it, and jingle-mails her first house keys back to the bank. That’s the house she “should have bought” back in 2005. It was too high then, but now, it’s just right.
http://cbs13.com/local/foreclosures.real.estate.2.638417.html
What is great about the intentional plan is the homeowner isn’t being shoved around to keep up housing prices, and she stays in her preferred location, getting what feels like a very good deal for a very similar house. Seems like more people would self-direct to the intentional plan than the trading one.
Either way, it’s just churning in the market. Either way, banks get back a lot of empty overpriced houses, which will need big price cuts before being re-sold. The reality is that housing has to drop a lot more in price. One way or another, that’s what is ahead.
meg,
A commenter on RCG told us about that some time ago. Reminded me of “God helps those who helps themselves.”. Their solution didn’t seem to be worse than no answer at all.
Ardell, you’re right, it’s an answer for some. For now.
However, if financial institutions would realize that they are (or will be) selling their vacant inventory at prices well below what the mortgage-holder paid, you’d think they would jump to do the workouts to keep owners in their homes. The darn thing doesn’t make sense.
meg,
Somedays I think maybe The Gates Foundation can fund a task force to tackle some of these problems one on one, one at a time. It’s a slow process, but every dozen helped is at least a move in the right direction.
Some people should get a loan mod, some should just leave, etc… Many answers, but a team of professionals, including an attorney, could quickly interview and evaluate and offer a recommendation and move to the next one.
Often people get 6 choices, and don’t know which one is right for them, so they do nothing.
The banks are doing a miserable job, for sure. In many cases they won’t talk to the owner, except to ask for a payment they can’t make. Banks wasting even more money employing people to make thousands of dumb and often harassing phone calls.
Well if Bill Gates is reading this, I for one hope he doesn’t spend his money pondering the U.S. housing problem and continues focusing on the foundation’s current mission statement.
If the homeowner at the top of this pile of houses moves down then we still haven’t solved the problem of the house at the top of the pile. Who buys that one?
That aside, “trading down” can and does happen organically.
When people can’t afford their payment they take on a tenant, move to more affordable housing accomodations and put a renter in the house, sell, or get foreclosed on and people who can afford to buy, buy.
The trade down idea doesn’t address the problem of how we’re going to qualify the trade downers for their new payment, the costs associated with re-working everyone’s mortgage, and the falling home values. To accomodate falling values, we’d want new trade downers to put down some cash. I’m assuming trade downers don’t have a downpayment so today’s tradedowner is next year’s negative equity trade-down-downer.
The President’s foreclosure rescue plan is scheduled to be announced this coming Wednesday.
I’m also waiting anxiously for the bank stress test which will hopefully be coming our way within the next two months.
Well if Bill Gates is reading this, I for one hope he doesn’t spend his money pondering the U.S. housing problem and continues focusing on the foundation’s current mission statement.
If the homeowner at the top of this pile of houses moves down then we still haven’t solved the problem of the house at the top of the pile. Who buys that one?
That aside, “trading down” can and does happen organically.
When people can’t afford their payment they take on a tenant, move to more affordable housing accomodations and put a renter in the house, sell, or get foreclosed on and people who can afford to buy, buy.
The trade down idea doesn’t address the problem of how we’re going to qualify the trade downers for their new payment, the costs associated with re-working everyone’s mortgage, and the falling home values. To accomodate falling values, we’d want new trade downers to put down some cash. I’m assuming trade downers don’t have a downpayment so today’s tradedowner is next year’s negative equity trade-down-downer.
The President’s foreclosure rescue plan is scheduled to be announced this coming Wednesday.
I’m also waiting anxiously for the bank stress test which will hopefully be coming our way within the next two months.
It may work for some. So will Loan Mods and cramdowns. However, I suggest we will have many years of people unwinding their loans, not qualifying for lower payments, deteriorating credit obligations, and further declining home prices for there will be nothing (that I have heard) to increase the property values.
The pride of Homeownership in America has been harmed to such an extent that I do NOT believe it can be repaired for a very long time. Americans will not stand for homeowners getting free refi’s to 4%, extending terms to 40 years, and having thousands lopped off Mtg’s of neighbors. We will be sold statements from the Fed that in the end it will increase your home value if your neighbor stays in theirs. Americans will not BUY THIS.
With our mobile society, uncertainty of jobs, and homes continuing to deteriorate the America Dream has come to a grinding HALT. The incentives to Buy over the next 5 years is what I will focus on for our Buyers. The banks are insolvent at this time. You will know we have turned the corner when BAC, C, WFC triple their market cap and have paid off their debts to the U.S. The CEO of BAC Ken Lewis suggests it will take 3 years. I doubt it.
I believe we are in for another leg down and advise ALL sellers to get their home sold (if needed) and become increasingly aggressive on their pricing. I assure everyone their home will be worth less in 2010 then it is today. This is what the Capital Markets are telling us.
However, and the best part…………….. Things never go according to plan…So I await the brilliance of our FED!
It may work for some. So will Loan Mods and cramdowns. However, I suggest we will have many years of people unwinding their loans, not qualifying for lower payments, deteriorating credit obligations, and further declining home prices for there will be nothing (that I have heard) to increase the property values.
The pride of Homeownership in America has been harmed to such an extent that I do NOT believe it can be repaired for a very long time. Americans will not stand for homeowners getting free refi’s to 4%, extending terms to 40 years, and having thousands lopped off Mtg’s of neighbors. We will be sold statements from the Fed that in the end it will increase your home value if your neighbor stays in theirs. Americans will not BUY THIS.
With our mobile society, uncertainty of jobs, and homes continuing to deteriorate the America Dream has come to a grinding HALT. The incentives to Buy over the next 5 years is what I will focus on for our Buyers. The banks are insolvent at this time. You will know we have turned the corner when BAC, C, WFC triple their market cap and have paid off their debts to the U.S. The CEO of BAC Ken Lewis suggests it will take 3 years. I doubt it.
I believe we are in for another leg down and advise ALL sellers to get their home sold (if needed) and become increasingly aggressive on their pricing. I assure everyone their home will be worth less in 2010 then it is today. This is what the Capital Markets are telling us.
However, and the best part…………….. Things never go according to plan…So I await the brilliance of our FED!
Jillayne,
My mind goes to a young woman I met back in 2004 who was the client of an agent who utilized the services of a non-orofit group. Not sure what their role was. I think they were called GIK Foundation for “God is King”.
Anyway, I went with her and her agent to look at property, and she had a letter from the lender provided through the Foundation to buy a condo for $165,000, if memory serves me.
In the course of conversation, I asked her what her payment would be, and she didn’t know. So I called the lender and asked for the breakdown of rate on the 1st and rate on the 2nd, so I could calculate her mortgage payment. The rate on the second was something like 11%! I looked at the girl. She was about 20 years old. I asked why the rate was 11%, and the lender said “because it’s subprime”.
Without grilling her, I casually asked her why she was subprime. She didn’t know and didn’t even know what that meant. I asked about her other debts and previous debt history. Nothing unusual. She had a car payment. No charge offs, nothing out of the ordinary.
We continued to look at property and I suggested that she and her agent do nothing until I could meet with the lender. The agent took me on Monday to The Foundation where the lender had an office.
I asked why the girl was subprime. Lender said “because her ratios are high”. I said why didn’t you just give her a letter for a lower amount then. She said, because it’s easier for us to put a file together for subprime because they don’t need much documentation, and our profit is higher on the subprime loan. You can imagine what I said next.
There are many people who simply bought what someone told them to buy. The received an approval letter saying “you are qualified up to a price of X.” These people are now thoroughly confused by the whole mess they are in.
Again, maybe that’s 20% or 10% or 5% of the people. But clearly if “A Foundation” can get them INTO this mess, then “A Foundation” can get them out of this mess.
I managed Private Foundations for several years back in the 70s and 80s, and this situation, some part of it, clearly needs someone to dig a little deeper then blaming the buyer of the house.
People need someone to roll up their sleeves and help these people wade through the alternatives, and yes, I think a non-profit group should be helping. If not the Gates Foundation, then maybe the Pew Foundation. I don’t care which Foundation, but someone.
If you watched The House of Cards, you will recall at least two families that clearly have done everything within their means, and are at the end of their rope. Their situation has not changed income or job-wise since they bought the house based on the advices of “the professionals” and in some cases lenders from their Churches!
You really can’t lump everyone into one big package and put a big label on it. It didn’t happen that way…and it won’t get fixed that way either.
Jillayne,
My mind goes to a young woman I met back in 2004 who was the client of an agent who utilized the services of a non-orofit group. Not sure what their role was. I think they were called GIK Foundation for “God is King”.
Anyway, I went with her and her agent to look at property, and she had a letter from the lender provided through the Foundation to buy a condo for $165,000, if memory serves me.
In the course of conversation, I asked her what her payment would be, and she didn’t know. So I called the lender and asked for the breakdown of rate on the 1st and rate on the 2nd, so I could calculate her mortgage payment. The rate on the second was something like 11%! I looked at the girl. She was about 20 years old. I asked why the rate was 11%, and the lender said “because it’s subprime”.
Without grilling her, I casually asked her why she was subprime. She didn’t know and didn’t even know what that meant. I asked about her other debts and previous debt history. Nothing unusual. She had a car payment. No charge offs, nothing out of the ordinary.
We continued to look at property and I suggested that she and her agent do nothing until I could meet with the lender. The agent took me on Monday to The Foundation where the lender had an office.
I asked why the girl was subprime. Lender said “because her ratios are high”. I said why didn’t you just give her a letter for a lower amount then. She said, because it’s easier for us to put a file together for subprime because they don’t need much documentation, and our profit is higher on the subprime loan. You can imagine what I said next.
There are many people who simply bought what someone told them to buy. The received an approval letter saying “you are qualified up to a price of X.” These people are now thoroughly confused by the whole mess they are in.
Again, maybe that’s 20% or 10% or 5% of the people. But clearly if “A Foundation” can get them INTO this mess, then “A Foundation” can get them out of this mess.
I managed Private Foundations for several years back in the 70s and 80s, and this situation, some part of it, clearly needs someone to dig a little deeper then blaming the buyer of the house.
People need someone to roll up their sleeves and help these people wade through the alternatives, and yes, I think a non-profit group should be helping. If not the Gates Foundation, then maybe the Pew Foundation. I don’t care which Foundation, but someone.
If you watched The House of Cards, you will recall at least two families that clearly have done everything within their means, and are at the end of their rope. Their situation has not changed income or job-wise since they bought the house based on the advices of “the professionals” and in some cases lenders from their Churches!
You really can’t lump everyone into one big package and put a big label on it. It didn’t happen that way…and it won’t get fixed that way either.
The “ones left” at the end would presumably be the same number as before, except the lender is now stuck with the highest value and probably highest loss properties. While I can see how this would be nice for real estate agents, it would not help the situation in the least.
b,
I’m thinking more about the people than “the situation”. I tend to do that. There’s a guy named Winston who commented on another post a little while ago saying he hates all of his fellow citizens. He said his income is $4,000 and he owns 4 properties free and clear. He said he’s living with no heat or hot water in order to pay the taxes on his 4 properties. He said the values are trashed and he hates everyone.
Wasn’t quite sure what to say to him, I’m sure what I did say wasn’t quite the right thing.
Some people look at the “situation” and others realize there are likely at least a half a dozen things that can be done to help some of the people and improve the situation, vs. fix it.
I think Obama expects everyone to do their part, fix one or two or ten and hope what he does and what we do on a combined basis, helps. I’m sure that’s what Obama expects of every American.
The “helps agents” part is silly. The highest leftovers will simply go empty as there won’t be enough buyers to buy them without loose lending. It won’t help agents to have a bunch of high end properties sitting empty. There are some McMansions that just should not have been built in the first place, and would not have been built if people had to qualify using normal lending standards.
I honestly do not know what you do with all those extra houses priced over a million dollars, but I’m sure they are not helping the agents who are paying to advertise them.
b,
I’m thinking more about the people than “the situation”. I tend to do that. There’s a guy named Winston who commented on another post a little while ago saying he hates all of his fellow citizens. He said his income is $4,000 and he owns 4 properties free and clear. He said he’s living with no heat or hot water in order to pay the taxes on his 4 properties. He said the values are trashed and he hates everyone.
Wasn’t quite sure what to say to him, I’m sure what I did say wasn’t quite the right thing.
Some people look at the “situation” and others realize there are likely at least a half a dozen things that can be done to help some of the people and improve the situation, vs. fix it.
I think Obama expects everyone to do their part, fix one or two or ten and hope what he does and what we do on a combined basis, helps. I’m sure that’s what Obama expects of every American.
The “helps agents” part is silly. The highest leftovers will simply go empty as there won’t be enough buyers to buy them without loose lending. It won’t help agents to have a bunch of high end properties sitting empty. There are some McMansions that just should not have been built in the first place, and would not have been built if people had to qualify using normal lending standards.
I honestly do not know what you do with all those extra houses priced over a million dollars, but I’m sure they are not helping the agents who are paying to advertise them.
Ardell the so-called foundation that helped the 2004 client was in it to make money. They weren’t a foundation.
There are many, many private companies willing to buy the toxic loans from the banks.
The problem is that the private companies will pay only cents on the dollar for those bad loans, rendering the biggest national banks insolvent today should they try to sell those loans on the private market.
One of the solutions, which Ray mentions, is to offer some homeowners modifications on troubled loans and it sounds like President Obama is going to announce a program like this on Wednesday.
There always was a subprime market and there always will be. Except now we’re all subprime and the government (FHA) is the lender of last resort.
I assert that people who were lied to and who were victims of bait and switch deserve our help.
Many, many more knew full well what they were doing.
In terms of rolling up sleeves and helping, non-profit HUD approved housing counseling agencies all across the United States have been doing just that for years and years, supported by our tax dollars. In fact, Governor Gregoire gave our state agencies 1.5 million out of the rainy day fund just this past June.
There are too many going in to foreclosure to help everyone, Ardell. No private foundation can save them all. There were over 900 notice of trustee sales filed in King County in January alone.
Just for fun, how would you propose a private foundation, with limited resources, begin sorting out who is deserving of it’s money?
Do we sort them by:
1) who was victimized by their lender or agent? If so, what proof would we require?
2) who is best able to repay a modified loan so as to not re-default? if so, what documentation would you want to review to prove ability to repay?
2a) What kind of terms would we offer for loan modifications?
3) would we just take foundation money and reduce the homeowners principal balance? If so, how much and do we give everyone a little bit or just a few people more?
4) owner occupied or non-owner occupied?
5) are families with children more deserving? the elderly? young couples? single men or women?
6) If a family has the ability to maintain their home and improve the land, would we give them priority over someone living hand-to-mouth each month?
7) If someone did not meet any criteria would the foundation give that person money to move into a rental home?
Limited resources. How would you divide up the foundation’s money, Ardell? We need to assume that Mr. Gates has other obligations for his foundation’s money. The housing crisis in the United States may seem like the center of the world, but it’s not.
Now that I re-read what I wrote, it would seem that any foundation created to help the homeowners would really be helping the banks stay solvent for a few more quarters.
Ardell, the banks are going to be nationalized. At that point, many more options may open up for *some* homeowners. But not all will be saved from foreclosure.
Ardell the so-called foundation that helped the 2004 client was in it to make money. They weren’t a foundation.
There are many, many private companies willing to buy the toxic loans from the banks.
The problem is that the private companies will pay only cents on the dollar for those bad loans, rendering the biggest national banks insolvent today should they try to sell those loans on the private market.
One of the solutions, which Ray mentions, is to offer some homeowners modifications on troubled loans and it sounds like President Obama is going to announce a program like this on Wednesday.
There always was a subprime market and there always will be. Except now we’re all subprime and the government (FHA) is the lender of last resort.
I assert that people who were lied to and who were victims of bait and switch deserve our help.
Many, many more knew full well what they were doing.
In terms of rolling up sleeves and helping, non-profit HUD approved housing counseling agencies all across the United States have been doing just that for years and years, supported by our tax dollars. In fact, Governor Gregoire gave our state agencies 1.5 million out of the rainy day fund just this past June.
There are too many going in to foreclosure to help everyone, Ardell. No private foundation can save them all. There were over 900 notice of trustee sales filed in King County in January alone.
Just for fun, how would you propose a private foundation, with limited resources, begin sorting out who is deserving of it’s money?
Do we sort them by:
1) who was victimized by their lender or agent? If so, what proof would we require?
2) who is best able to repay a modified loan so as to not re-default? if so, what documentation would you want to review to prove ability to repay?
2a) What kind of terms would we offer for loan modifications?
3) would we just take foundation money and reduce the homeowners principal balance? If so, how much and do we give everyone a little bit or just a few people more?
4) owner occupied or non-owner occupied?
5) are families with children more deserving? the elderly? young couples? single men or women?
6) If a family has the ability to maintain their home and improve the land, would we give them priority over someone living hand-to-mouth each month?
7) If someone did not meet any criteria would the foundation give that person money to move into a rental home?
Limited resources. How would you divide up the foundation’s money, Ardell? We need to assume that Mr. Gates has other obligations for his foundation’s money. The housing crisis in the United States may seem like the center of the world, but it’s not.
Now that I re-read what I wrote, it would seem that any foundation created to help the homeowners would really be helping the banks stay solvent for a few more quarters.
Ardell, the banks are going to be nationalized. At that point, many more options may open up for *some* homeowners. But not all will be saved from foreclosure.
Prices won’t stabilize and confidence won’t come back until people believe that the price reflects the true value of the property. This is why bottoms can only be called after the fact. And why the sooner we find the bottom the quicker that the economy can recover.
What is this obsession with saving the bondholders and bank shareholders? The working people will bear the costs in the long run (as they always do) through higher taxes to pay for the future debt service and inflation. For many homeowners they would be better off to discharge their debt and yes, “lose” their home through foreclosure and/or bankruptcy.
I believe that just like the Fed overshot on keeping rates too low for too long and juicing the credit bubble there’s no way to time when to pull back the reins and stop printing money, at which point inflation will have already taken hold. And inflation will hurt the average person much more than this decline in asset prices.
Jillayne,
It really is not all that hard to figure out as to who was victimized and who was not vicitmized. Not sure why you don’t care about that,
I don’t think you understand what I’m saying here. The Foundation would not bail out the homeowner. The Foundation would fund a group that helps people get the right answer. They would first determine if they were victimized or not, and go from there.
People need a place to turn to, and the current resources are simply not good enough for the situation at hand. THAT IS what Foundations DO. Private Foundations have been attacking current and newer problems like this for many years. Often private funding can move more quickly and they are a supplement to government answers.
Example: Anorexia When even most of the medical profession thought that was a brat who wouldn’t eat, Private Foundations spearheaded the solution until others caught up.
I don’t know why you always want to argue with me these days. We’re just looking at the same problem from two different perspectives. This problem is big enough for many and varied solutions, don’t you think?
Not sure why you keep getting angry with me for taking the personal side of this issue.
Seems Jillayne that you are being very macro and I am being very micro on this issue. It takes both working in unison on a problem this big, don’t you think?
I’m much more familiar with The Pew Foundation than The Gates Foundation. I’m using Gates simply because my experience with managing Private Foundations is that it is best if each does a little something in each of their local areas.
http://www.pewtrusts.org/
Clearly the role of Private Philanthropy has been involved in Public Policy issues for many years. There are many books on the subject and my suggestion is really not far afield from another part of the solution.
This is a HUGE problem, Jillayne. There are many, many answers and some will focus on the Banks and some on the people who are suffering. Put me in the column of worrying about the people.
Jillayne,
If you click on the link to The Pew Foundation, way down at the bottom you will see “Philadelphia Region”. Even though the objectives of Pew are many and varied and outside of Philadelphia, they always participate in strengthening the region where they are, to some degree. They never lose sight of that, and I don’t know what % of their total funds is used in the “Philadelphia Region”. But THAT is what I expect of The Gates Foundation, as it is my experience, and because it is the right thing to do.
Pew doesn’t forget that it’s money came originally, to some degree, from Phailadelphia. I expect The Gates Foundation to do the same for the Pacific Northwest.
Ardell,
The Gates Foundation recognizes that it cannot solve all of the worlds problems, so it has focused its resources on a few very important issues. Internationally, it is focused on health care and extreme poverty. In the US, it is focused on education and access to information technology. It would be unfortunate if they were to divert resources from those issues to the Seattle housing market, which, in comparison, is not nearly as much of a problem (to some people who have been priced out of purchasing a home, the rise in foreclosures and dropping prices may actually be a good thing).
If somebody in Seattle loses their home to foreclosure, they are likely to move into a more modest house or apartment. The people helped by the Gates Foundation are often living in extreme poverty, or with extreme illness. I think that’s what Jillayne was trying to say… it’s important to take a step back and look at these housing problems from a different perspective.
Ardell,
The Gates Foundation recognizes that it cannot solve all of the worlds problems, so it has focused its resources on a few very important issues. Internationally, it is focused on health care and extreme poverty. In the US, it is focused on education and access to information technology. It would be unfortunate if they were to divert resources from those issues to the Seattle housing market, which, in comparison, is not nearly as much of a problem (to some people who have been priced out of purchasing a home, the rise in foreclosures and dropping prices may actually be a good thing).
If somebody in Seattle loses their home to foreclosure, they are likely to move into a more modest house or apartment. The people helped by the Gates Foundation are often living in extreme poverty, or with extreme illness. I think that’s what Jillayne was trying to say… it’s important to take a step back and look at these housing problems from a different perspective.
The banking system has created this entire mess and now it’s time for them to fix it.
If they had just stepped up to the plate a year ago to modify loans to keep people in their homes and stop the foreclosures the snowball affect of fallings home prices would not have been as severe.
The lack of the bank’s taking responsibility for their actions in this mess has compounded their own financial problems. Now they need money fast and they stupidly think that foreclosing is a quick way to get the asset back for resale? I suppose on a small scale that might work, but when every bank is failing and every bank is foreclosing and the market is saturated with distressed properties and foreclosures, well surpise, real estate market values fall. Is anyone awake at the wheel? Apparently not.
The banks want to blame folks who bought homes they couldn’t afford and Ardell has given us perfect examples of people who were sold mortgages and homes they couldn’t afford, because they relied on “professional advice
The banking system has created this entire mess and now it’s time for them to fix it.
If they had just stepped up to the plate a year ago to modify loans to keep people in their homes and stop the foreclosures the snowball affect of fallings home prices would not have been as severe.
The lack of the bank’s taking responsibility for their actions in this mess has compounded their own financial problems. Now they need money fast and they stupidly think that foreclosing is a quick way to get the asset back for resale? I suppose on a small scale that might work, but when every bank is failing and every bank is foreclosing and the market is saturated with distressed properties and foreclosures, well surpise, real estate market values fall. Is anyone awake at the wheel? Apparently not.
The banks want to blame folks who bought homes they couldn’t afford and Ardell has given us perfect examples of people who were sold mortgages and homes they couldn’t afford, because they relied on “professional advice
Ardell –
We already have a tried and true process to fix the “situation” these people are in, its called foreclosure. For some reason I feel no sympathy for someone in a home they cannot afford, unless the loan officer falsified their signatures or forged their application. That is maybe 2% of the people who bought in the last 3-4 years, for everyone else they knew they could not afford what they were buying but hoped to HELOC it into a yacht instead.
Julie –
The collapse was brought on by a number of factors, and the people who purchased homes they could not afford were acting together with the financial institutions. Everyone I know who participated was not tricked by a banker but was in it to make a huge amount of money for nothing (or so they thought). Blaming the corporations only is quite foolish, its like blaming just stock brokerages and MSNBC for the tech bubble. Sure, they didn’t help it any and were pushing a hard sell, but without people buying those stocks thinking they will get rich for nothing there never would have been a bubble. And that is why I find all this real estate agent talk of “helping” these people so sickening. Nobody is helping me with my rent payments, and they sure as hell weren’t helping me when they spiraled house prices well above their long term trend line. And nobody would be helped now by artificially propping up asset prices and giving handouts to people who have shown they are incredibly irresponsible with credit.
Ardell –
We already have a tried and true process to fix the “situation” these people are in, its called foreclosure. For some reason I feel no sympathy for someone in a home they cannot afford, unless the loan officer falsified their signatures or forged their application. That is maybe 2% of the people who bought in the last 3-4 years, for everyone else they knew they could not afford what they were buying but hoped to HELOC it into a yacht instead.
Julie –
The collapse was brought on by a number of factors, and the people who purchased homes they could not afford were acting together with the financial institutions. Everyone I know who participated was not tricked by a banker but was in it to make a huge amount of money for nothing (or so they thought). Blaming the corporations only is quite foolish, its like blaming just stock brokerages and MSNBC for the tech bubble. Sure, they didn’t help it any and were pushing a hard sell, but without people buying those stocks thinking they will get rich for nothing there never would have been a bubble. And that is why I find all this real estate agent talk of “helping” these people so sickening. Nobody is helping me with my rent payments, and they sure as hell weren’t helping me when they spiraled house prices well above their long term trend line. And nobody would be helped now by artificially propping up asset prices and giving handouts to people who have shown they are incredibly irresponsible with credit.
In all due respect:
6 month moratorium on foreclosures
4% available for everyone
will just delay the inevitable other then letting people save up money for a rental. It will NOT stop the falling of asset values.
Modification of Loan amounts(principle reduction) is what will keep people in their homes. People will not stay in their homes when they are upside down triple digits. It will cause foreclosures to continue for a decade if we just lower interest rates and institute moratoriums.
When people are upside down 50-200k and they make their lower payments, taxes, insurance, and upkeep ***I assure you they will walk at any point in the future due to job, better opportunity, finding a nice rental, etc.
Band aides on gaping wounds do nothing. But, still I await for brilliance from the FED.
In all due respect:
6 month moratorium on foreclosures
4% available for everyone
will just delay the inevitable other then letting people save up money for a rental. It will NOT stop the falling of asset values.
Modification of Loan amounts(principle reduction) is what will keep people in their homes. People will not stay in their homes when they are upside down triple digits. It will cause foreclosures to continue for a decade if we just lower interest rates and institute moratoriums.
When people are upside down 50-200k and they make their lower payments, taxes, insurance, and upkeep ***I assure you they will walk at any point in the future due to job, better opportunity, finding a nice rental, etc.
Band aides on gaping wounds do nothing. But, still I await for brilliance from the FED.
Hi Julie,
While it would appear on “House of Cards” that people want to stay in their home, what I see first hand is not that case about 50% of the time.
1) Some bought with two people (boyfriend/girldfriend or husband and wife) and one of the wage earners has left. The remaining person can’t do a loan mod or stay, since they no where near qualify as a single wage earning household. In many cases they don’t want to stay either. In another market, without being upside down value-wise, that would simply be a home sale. Today it is a short sale or foreclosure.
2) Most any reason to leave the area is a short sale or foreclosure, simply due to upside down value factors. The reason many of these properties are in default, is because the bank won’t talk to the owner about other alternatives as to selling the property for less than is owed. A person pretty much has to ruin their credit to get anyone to talk to them, and even then the “talks” with the bank personnel is not productive most times.
It is quite erroneous to think that all, or maybe even the bulk, of the problem lies with people who want to stay in the property.
Fabulous comment, BTW!
b,
I appreciate your comments, but I disagree. It’s not about helping the individual who made foolish investments on bad advice. It’s about stabilizing the enconomy. Look at the big picture.
Your comment: “And nobody would be helped now by artificially propping up asset prices and giving handouts to people who have shown they are incredibly irresponsible with credit.”
It’s about stabilizing the ecomony, job markets and financial markets around the world.
I’m not worried that my home has lost value as I plan to stay in my home for a long, long time.
I’m worried about all those people who are losing their jobs, the retirees that are losing their retirement money.
Personally, I think the ecomonic shake up is the best thing that’s happend in a long time. Things were out of control. Fraud was rampent. Ponzi’s schemes are falling apart. House prices were artifically high. The is the best house cleaning that has come about in a long time.
But now is the time to gain some stability in all the markets and it’s going to have to start in the housing market. That represents almost 70% of the poplulation.
Also, your comment to Ardell regarding only 2% fell in the category of fraudulent loans is off – where did you get this number? In California it could be as high as 40% of the loans. 2% – maybe in Washington State, but not in other highly distressed states.
The other real hazard here is a risk that bailing out the irresponsible homeowners will encourage the same behavior in the future. The people who played by the rules and have been making their payments are getting hosed at both ends. 1) By falling asset prices and 2) paying to bailout the fools who believed that real estate prices would “never” fall even a little bit.
Yes, some people were sold predatory loan products but far, far more knew exactly what they were doing with Interest Only and/or 100 percent financing and ignored the risks. I have empathy for the first group but am not sure how the government can help the first but not reward the other.
“I think the economic shake-up is the best thing that has happened in a long time.”
An excusable, incompetent statement. You obviously have no clue as to the extent of damage this has caused on our nation and the WORLD. This is NOT a run-of-the mill recession that comes along every 20 years. As soon as people realize this the sooner we can all assist the public with professional expert advice.
Thats why we are here isn’t it?
“I think the economic shake-up is the best thing that has happened in a long time.”
An excusable, incompetent statement. You obviously have no clue as to the extent of damage this has caused on our nation and the WORLD. This is NOT a run-of-the mill recession that comes along every 20 years. As soon as people realize this the sooner we can all assist the public with professional expert advice.
Thats why we are here isn’t it?
Ray,
I do not underestimate the damage that has been done globally. I also understand how serious our current situation is. I’m also concerned that it’s going to get much worse before it gets better.
My statement of “I think the economic shake-up is the best thing that has happened in a long time.” … was meant that finally the fraud and ponzi schemes were being outed, hence the comment about house cleaning. I did not mean it as it was the best thing to happen to our Country. I should have been more clear in my statement.
The rampant fraud, pryamid and ponzi schemes had to crash at one point in order to get back to reality. It’s really unfortunate how it has played out. Because of no regulation these things were allowed to happen.
I believe the biggest player in this mess has been the CDOs that were sold around the World. I don’t know how this could have played out any differently once those loans went bad. Do you?
I certainly wished it had played out differently because so many people are suffering greatly.
Julie… fraud, pyramids, and ponzi schemes will always exist in Capitalist societies. We will never be able to stop it. The current Madoff scandal is not a shock. There are thousands of frauds that are being conducted today and tomorrow.
Julie –
Propping up asset prices that are trying to fall does not help financial stability at all, its just a fascade to prolong the “crash” over the course of a decade rather than a couple of years. Please see Japan for the exact reason why we do NOT want to head down that path. What would really help stability in the long run is avoiding moral hazards, nationalizing and breaking up the banks and punishing investors and homeowners who also were a part of this. You will solve nothing by prolonging the pain and rewarding the people who caused the problems, that just ensures that things are worse for everyone and that another bubble will form as quickly as possible.
The market is going to seek to rebalance itself, government intervention in this process just delays it unless you believe the government will prop up prices forever and no matter the cost. Politically, it cannot and will not do that. And your estimation that 40% of people bought homes and were tricked into it is laughable. Actual FRAUD and not GREED was certainly present, but I would seriously doubt its much far off my 2% of transactions estimate. That other 38% is covered by wishful thinking, believing everything a salesman (aka realtor) tells you and irrational thinking, clouded by belief in a free lunch. I know many people who took a large risky plunge into RE during the bubble, ALL of them saw it as a path to free money. Its no surprise that now the party is over, ALL of them and the bankers included want to continue that free money ride via the government.
vermillionsky,
One of Private Philantropy’s primary uses over the years has been its ability to spot problems as they occur, and speed some money toward the problem quickly. Particularly in the local region of The Foundation, much like local authority’s do in a distater until FEMA arrives. They are supposed to have a bit less “red tape” than other responses to problems and often set up a framework for response, and then pass that to whomever is going to target that effort for the long haul.
So while a Foundation will have long term plans, they most often will keep 20% or so of their allotments free for short range immediate and local needs. Somewhat like a staggered bond portfolio with long and short maturity dates and a cash position.
Churches, particularly very large more contemporary ones, can also be a resource. What I am seeing is everyone looking at the government, and no good resources from private sources. Does anyone know where someone would go to help them sort out these issues? A charity of some kind, somewhere, in the area? I’m thinking of going over to the City Church, to see if they have anything set up.
My sister in PA has for many years taught budgeting classes at her Church and works for The Genesis Program, and many others in that area. She has even been invited to the White House due to her efforts with organizaqtions that help people with home buying issues. I have asked many times, but from what I am hearing from people, the Pacific Northwest simply does not have enough private efforts in this area of need on a GOOD day…and this is not a good day.
b, said: “We already have a tried and true process to fix the “situation
b,
It is without question that “the government propped up home prices” after 911. It is part of what they do and part of what they should do, at times.
Are you saying they should never do that? Providing FHA funding does that, year round, for many years.
“Let the chips fall where they may” is not “the American Way”, nor has it every been so.
Ardell,
I agree that people should be seeking assistance from private organizations before seeking it from the government. I don’t think it is fair to single out the Gates Foundation and ask it to divert resources from its primary mission of fighting global hunger and disease to fighting a downturn in local Seattle real estate.
I believe Jillayne has just recently completed a 5-part series on foreclosure, which included a link to the HUD approved housing counseling offices. That would be a good place for people facing foreclosure to start:
http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm
My mother used to be a caseworker for LIHEAP (Low-Income Home Energy Assistance Program) in Ohio. She often referred families to the Catholic Charities office across the street for additional assistance. They have a lot of different assistance programs and serve people of any religion. Their link for western Washington is here:
http://www.ccsww.org/
vermillionsky,
If every Church and every Foundation in every area adopted a small geographic segment to supplement government services, provide caring counseling and legal assistance, this HUGE problem would get a little smaller.
Everyone looking to the great government god in the sky…is not appropriate for a problem of this magnitude. Private assistance coupled with government assistance is needed. Not to pay people’s debts, but maybe to keep their water and heat on while they sort throught their options.
I don’t mean to “single out” the Gates Foundation. Put the full list of local Foundations in there. I just don’t know them all. Maybe there are others. Throw in the churches and the Elks Clubs and the Knights of Columbus, while you’re at it. Just get more hands on the real problems of the people on “main street” and as quickly as possible.
vermillionsky,
If every Church and every Foundation in every area adopted a small geographic segment to supplement government services, provide caring counseling and legal assistance, this HUGE problem would get a little smaller.
Everyone looking to the great government god in the sky…is not appropriate for a problem of this magnitude. Private assistance coupled with government assistance is needed. Not to pay people’s debts, but maybe to keep their water and heat on while they sort throught their options.
I don’t mean to “single out” the Gates Foundation. Put the full list of local Foundations in there. I just don’t know them all. Maybe there are others. Throw in the churches and the Elks Clubs and the Knights of Columbus, while you’re at it. Just get more hands on the real problems of the people on “main street” and as quickly as possible.
The banking system has created this entire mess and now it’s time for them to fix it.
and
The market is going to seek to rebalance itself, government intervention in this process just delays it.
You see b she said the banking system needs to fix it.
125% of what banks and lenders did, have done, and are doing is fraud. You just don’t see it. You’re not a consumer. If you were you would see that the easy credit rip off found it’s way into home mortgages.
Stocks, bonds and securities are all based on that easy credit. High interest with fees attached make up your paper profits until it reaches the home mortgage division. There they do you the supreme favor of offering, get this, 5.5% interest on money they are borrowing for 2 to 3%. Isn’t it great? but wait there’s more.
Rather than admit that the entire global economy was expanded by easy credit options for your daily purchases the banks, hedge funds, stock markets are crying about losing a few billion dollars. What did they do? They shut off easy credit, called loans, and hoarded cash.
When the world economic community gave them billions of more dollars they went to Las Vegas to celebrate.
They need to fix it. They need to lower interest rates and get the over priced crap they have loans on performing again. They are crooks, they are swindlers, liars, thieves, and are never to be trusted again, but in the mean time they need to fix the mess they made.
The banking system has created this entire mess and now it’s time for them to fix it.
and
The market is going to seek to rebalance itself, government intervention in this process just delays it.
You see b she said the banking system needs to fix it.
125% of what banks and lenders did, have done, and are doing is fraud. You just don’t see it. You’re not a consumer. If you were you would see that the easy credit rip off found it’s way into home mortgages.
Stocks, bonds and securities are all based on that easy credit. High interest with fees attached make up your paper profits until it reaches the home mortgage division. There they do you the supreme favor of offering, get this, 5.5% interest on money they are borrowing for 2 to 3%. Isn’t it great? but wait there’s more.
Rather than admit that the entire global economy was expanded by easy credit options for your daily purchases the banks, hedge funds, stock markets are crying about losing a few billion dollars. What did they do? They shut off easy credit, called loans, and hoarded cash.
When the world economic community gave them billions of more dollars they went to Las Vegas to celebrate.
They need to fix it. They need to lower interest rates and get the over priced crap they have loans on performing again. They are crooks, they are swindlers, liars, thieves, and are never to be trusted again, but in the mean time they need to fix the mess they made.
Jillayne …….Just so very sad….The masses just don’t know how hard it will truly get.
http://www.cnbc.com/id/15840232?video=1036322663&play=1
Jillayne …….Just so very sad….The masses just don’t know how hard it will truly get.
http://www.cnbc.com/id/15840232?video=1036322663&play=1
b.
75% of the home loans in one California community were subprime.
“A Register analysis of federal housing data pinpointed West Camile Street as a center of the subprime borrowing binge. In 2005, 75 percent of the home loans in the surrounding census tract were subprime.”
“On Camile Street every variety of la droga is on display: adjustable-rate loans with low teaser payments that quickly escalate; prepayment penalties so large that homeowners cannot refinance; “piggyback loans” so low-income buyers can own a house with no money down. All are described in long, complex documents that many Spanish-speaking buyers cannot read. ”
I call this fraud and it’s much more than 2%. Do you have data to back up your 2% amount?
http://www.ocregister.com/news/loans-camile-percent-1806121-subprime-loan
David,
Banks don’t “fix things”.
Thanks, Ray. That’s a great clip. The commenter said “the banks are insolvent right now with mark-to-market accounting.”
I’ve been talking about bank nationalization in the classroom with my students for several months now. Almost everyone thought I was mad/insane/being negative way back then.
They’ll nationalize the banks after the stress tests are finished and when President Obama will make it clear that there are no other options.
Maybe one or two might make it past the stress test and just need more capitalization.
Either way, I think it will be a good, positive step because the banks will finally begin lending again.
Thanks, Ray. That’s a great clip. The commenter said “the banks are insolvent right now with mark-to-market accounting.”
I’ve been talking about bank nationalization in the classroom with my students for several months now. Almost everyone thought I was mad/insane/being negative way back then.
They’ll nationalize the banks after the stress tests are finished and when President Obama will make it clear that there are no other options.
Maybe one or two might make it past the stress test and just need more capitalization.
Either way, I think it will be a good, positive step because the banks will finally begin lending again.
Jill if you truly believe Nationalization will occur BAC is trading at 5.00+ pps and WFC at 15.00. Would be a great short bet for you. COLB at 9.00 and BANR at 3.00 for our local banks would be a good play as well. I’m just not that confident……… yet. AXP just announced HUGE customer credit defaults on payment obligations today. Stock is getting slammed. GE at 11.00 will be chopped in 1/2 (or less) upon Nationalization of banks.
I have traded over 20 years and there are certain rules I live by. # 1 is never, EVER fight the FED. I covered my shorts 2 months ago. America has been resilient in the past and so has the American economy. I find it hard to bet against it at this point.
I still believe Geithner has many cards up his sleeve.
Jill if you truly believe Nationalization will occur BAC is trading at 5.00+ pps and WFC at 15.00. Would be a great short bet for you. COLB at 9.00 and BANR at 3.00 for our local banks would be a good play as well. I’m just not that confident……… yet. AXP just announced HUGE customer credit defaults on payment obligations today. Stock is getting slammed. GE at 11.00 will be chopped in 1/2 (or less) upon Nationalization of banks.
I have traded over 20 years and there are certain rules I live by. # 1 is never, EVER fight the FED. I covered my shorts 2 months ago. America has been resilient in the past and so has the American economy. I find it hard to bet against it at this point.
I still believe Geithner has many cards up his sleeve.
Just putting my $.02 in for Banks not being nationalized. I don’t think that will happen. Don’t want to discuss why or why not…would rather stick to real estate, but I heard that before and it didn’t happen, and I don’t think it will happen this time either.
I don’t understand all the talk about banks not being able to give loans, as if there are not people buying houses and loans funding every day. Clearly people are still buying houses and using credit to buy things right now.
The reason it seems that everyone is looking to the government is because no other organization has enough money to solve the problem. The government doesn’t even have enough money short of printing trillions more and devaluing the US Dollar and higher inflation and interest rates in the long run. Asset prices have to fall to equilibrium for any recovery to happen. The bottom line is you can’t solve the housing problem without also addressing the banks, which is why housing finance continues to come up in the conversation.
And please don’t compare helping out homeowners who signed up for loans they can’t afford with the work that the Gates Foundation has done and continues to do with fighting diseases like malaria that plague truly impoverished people groups. The poor in the USA are much better off financially than the vast majority of the people in the world.